The Citizens Guide to the Budget Debate

April 13, 2011

Robert Borosage

On Wednesday, the President will lay out his principles for deficit reduction, responding to the Republican FY 2012 budget put forth by House Budget Chair Rep. Paul Ryan.

The Ryan plan is brazen and preposterous. It violates every common sense principle about dealing with deficits. It is more a profile of corruption than a profile of courage. It caters to entrenched corporate interests and the wealthy, while savaging basic security for Americans, doing much to turn the American Dream into an unreachable fantasy.

The president has no choice but to assail its assumptions and to lay out a different course. His speech will soon be followed by a proposal hatched by the so-called “gang of six,” six Senators who have been meeting together to develop a bipartisan, supposedly “centrist” alternative. The conservative House Study Group has offered a budget more extreme than Ryan’s. The Congressional Progressive Caucus has developed an alternative to the President’s.

So, before you are lost in the thicket of proposals, here is a common sense citizens’ guide to the budget debate.

1. Put people to work

The most effective deficit reduction measure is to put people to work. We still have an economy struggling to recover from the Great Recession, with 25 million people in need of full time work. Nobel Prize Winning economist Joseph Stiglitz warns that plans for immediate deep cuts in spending such as those called for by the co-chairs of the president’s budget commission are a “suicide pact.” Stiglitz, Paul Krugman, even Fed Chair Ben Bernanke have all cautioned against deep cuts immediately. Instead, Congress should be taking steps to rebuild our infrastructure, to forestall layoffs of teachers and police by states and localities across the country, and to put people to work directly if needed.

Republicans, of course, have demanded not simply an end to any further jobs spending, but deep cuts starting immediately. The $38 billion in cuts just agreed to for this year’s budget will cost jobs – and may endanger an already faltering recovery. The President has apparently decided to embrace the need for immediate deficit reduction – but progressives should not forget that the first imperative is jobs.

2. Tax “them that’s got”

Any plan for addressing deficits must include increases in revenue. The US is one of the least taxed industrial nations in the world. 1% of Americans is pocketing about 25% of all income, and captured fully 2/3 of the gains from growth over the Bush recovery. The richest Americans are paying a lower effective tax rate than their secretaries. As Warren Buffett says, there is a class war and “my class is winning.”

Any sensible plan must start by making the tax code more progressive, eliminating loopholes and raising taxes on millionaires and billionaires. We should also be taxing what we need less of – like financial speculation on Wall Street, or off shore tax havens.

The Ryan plan would extend the Bush tax cuts and lower tax rates for corporations and the rich. CBO estimates that virtually all of the money it saves by savaging domestic programs and cutting health care for children, the poor, the disabled, and the elderly would be devoted to paying for those largely top end tax cuts. No plan should be considered that does not capture more deficit reduction from tax reform as it does from spending cuts.

3. No Defense for Defense

The United States now spends about as much on its military as the rest of the world combined. We’re spending 40% more in comparable dollars than we did under Reagan at the height of the Cold War. Now the Soviet Union is no more; our major adversaries are non-state terrorists. We’re running the arms race with ourselves. The Pentagon is, without any doubt, the largest source of waste, fraud and abuse in the federal government. As GAO reports document, its record keeping is in such miserable shape than not one of the services can be audited, much less pass an audit. It is unable to keep track of what it has purchased, what it has consumed, or what it has stored on the shelf. Cost plus, non-negotiated contracts insure contractors like Halliburton make out like bandits.

Domestic, non-security discretionary spending is not even 15% of the budget. It supports what we think of as government services, outside of defense and mandatory programs like Medicare and Social Security. Many of these areas – from 21st century infrastructure to education to research and development – are in dire need of more resources if we are to rebuild a competitive economy. Many – like cops on the beat for food safety, environmental and consumer protection, financial sobriety – have been starved for funds and authority for decades.

A measure of courage and common sense would require than any spending cuts in deficit reduction plans start with and focus on the defense budget. Instead, Ryan basically gives the military a pass, while calling for deep cuts in domestic spending. He offers much verbiage about eliminating waste and duplication, which no one opposes. But the reality is deep cuts in muscle and bone of basic government. He preposterously puts a lid on discretionary spending that would reduce it to 3.5% of GDP, or about what we spend on the military alone. That would require erasing all that we know as government, and will not happen.

4. If it ain’t broke, don’t fix it

Social Security is lumped in as part of the faux “entitlements crisis.” The clownish Alan Simpson, unfortunate co-chair of the President’s deficit commission, the relentless billionaire Pete Peterson, and many more in the beltway establishment keep issuing alarms about Social Security. Don’t fall for it. Social Security is not part of the deficit problem; and not be part of the solution.

Social Security is in surplus. According to the CBO, it will remain in surplus throughout the decade. Both parties promise that any reforms to Social Security won’t kick in until those currently aged 50 or 55 retire, so Social Security isn’t part of the deficit solution either.

Rep. Ryan leaves Social Security off the table, but the House Study Group wants to privatize the program. The gang of six is rumored to be considering hikes in the retirement age or cuts in benefits. Don’t fall for it. Over the long term, divorced from the hysteria about deficit reduction, Social Security will need minor adjustments to insure that it continues to pay out its promised benefits in full. It also should increase, not decrease, its benefits for more vulnerable retirees, for widows, for those over 80 among others. How much will be required will depend, in part, on whether the economy grows and whether workers’ wages rise or continue to stagnate. Much of the reform can be achieved simply by lifting the cap on the payroll tax so that Paris Hilton pays the same percentage on her income as Wall Mart employees. If they are talking about cutting Social Security benefits or lifting the retirement age, you can be certain that while Wall Street got the gold, you are getting the shaft.

5 Health Care: Focus on the disease, not the symptoms

Once the debate starts in full, you are going to hear a lot of alarm about America’s “entitlement crisis.” Forget it. We don’t have an entitlement crisis. We don’t have a crisis in Medicare or Medicaid. We have a broken health care system. The blood curdling projections of long term, rising deficits and debt come entirely from rising health care costs. These are expressed in the budget largely by Medicare, Medicaid and the Veteran’s Administration. But those are the merely the budgetary symptoms. The crippling disease in a broken health care system, dominated by powerful corporate complexes – the drug industry, the insurance companies, the hospitals – that have succeeded in having the US pay more than two times more per capita on health care than the average of other industrial countries with worse results.

http://seekingalpha.com/article/146992-comparing-u-s-healthcare-spending-with-other-oecd-countries
Turning Medicare into a voucher or Medicaid into a limited block grant will reduce the budget symptoms, by foisting more costs on those least able to pay them — the elderly, the disabled and the poor. It will end Medicare as we know it, and break the promise to seniors and the disabled of care in the dusk of life. But it won’t stop the hemorraghaing costs that will continue to bleed business, states and localities and families.

So here’s a common sense guide. If the debate is focused, as Ryan is, on putting a lid on Medicare and Medicaid spending, the most vulnerable are about to take the hit.. If it is focused on empowering Medicare to negotiate bulk discounts on drugs, or a public option to compete with health insurance companies, or mandates to require insurance companies to spend more on health care and less on administration, then small sensible steps are underway.

6. A Strategy for Our Future

Finally, all the hysteria about budget deficits has distracted attention from America’s other deficits. We have a growing public investment deficit in areas vital to our future – from infrastructure to education to research and development. We have a growing trade deficit that forces us to borrow from abroad, now at the tune of about $1.5 billion per day. We are losing ground in the race to lead the green industrial revolution that will sweep the world over the next decades.

The simple fact is that, contrary to conservative fundamentalists, we can’t cut our way to economic health. We have to have a strategy to make the investments we need, in a fashion we can afford. That requires a new economic strategy to revive manufacturing in America, balance our trade, invest in our infrastructure and schools, and make America a center of innovation once more. And instead of trampling the right to organize, we should be empowering workers, to insure that the benefits of growing productivity and profits are more widely shared.

Any plan that focuses only on cutting spending, divorced from any strategy for this country is a recipe for decline. Ryan offers no plan for growth, other than the purblind belief that cutting spending will liberate what Krugman calls the “confidence genie,” increasing business confidence to invest and hire — – despite the absence of customers.

When the president speaks, and the Senate gang of six reports, we’ll rate the plans according to this common sense measure. They say you can’t tell the players without a scorecard. Well, we’ll give you the score card.

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About Robert Borosage

Robert L. Borosage is the founder and president of the Institute for America’s Future and co-director of its sister organization, the Campaign for America’s Future. The organizations were launched by 100 prominent Americans to develop the policies, message and issue campaigns to help forge an enduring majority for progressive change in America.
Mr. Borosage writes widely on political, economic and national security issues. He is a Contributing Editor at The Nation magazine, and a regular blogger on the Huffington Post. His articles have appeared in The American Prospect, the Washington Post, the New York Times and the Philadelphia Inquirer. He edits the Campaign’s Making Sense issues guides, and is co-editor of Taking Back America (with Katrina Vanden Heuvel) and The Next Agenda (with Roger Hickey).